Published 8:00 pm, Thursday, October 8, 2009

WASHINGTON R. Michael S. Menzies Sr,, president and CEO of Easton Bank and Trust, testified Sept. 30 in front of the House Committee on Financial Services.

The committee appears ready to create a new agency The Consumer Financial Protection Agency which would attempt to regulate abusive lending companies to protect consumers from accepting unscrupulous loan packages.

Menzies, representing the Independent Community Bankers of America, testified that the proposed new agency should focus its efforts on the three entities that caused the recent financial meltdown unregulated, underregulated, and too-big-to-regulate financial service companies. He argued that attempts to force lenders into offering "plain vanilla" loan products would undermine the existence of community banks.

Congressman Barney Frank, D-4th-Mass., chairman of the House Committee on Financial Services, has introduced H.R. 3126, which will create the new agency.

Menzies, testifying at the full committee hearing, said: "As currently drafted, ICBA is very concerned that H.R. 3126 would do more harm than good by unduly burdening our nation's community bankers who did not engage in the deceptive practices targeted by the proposal, yet would be hardest hit by the added regulatory burden imposed by this new agency."

Menzies also testified that attempts at financial service reform should focus on modernizing "financial consumer protection regulations of the many non-bank firms, and to address the challenges posed by systemically risky and too-big-too-fail institutions."

Community bankers do not favor another level of government oversight for small, local banks. Menzies, however, in a phone conservation on Thursday, conceded that the creation of the Consumer Financial Protection Agency is "probably a political fait accompli (an accomplished fact)."

"We are in favor of regulating those who created the train wreck and that does not include community banks," he said. "We believe that those who practice abusive lending need to be properly reined in and regulated. We believe that abusive mortgage and credit card and lending practices have injured community banks as much as they have injured consumers. … While we would prefer that there is not a new huge government agency of any form, we would prefer that the existing regulatory system continue to apply the 1,700 pages of consumer protection legislation through those existing regulators. We recognize that there is going to be some form of political reaction to the abuses of the first half of this decade, right or wrong, good or bad."

Menzies said existing regulators (Federal Reserve, OCC, FDIC, FFIEC, etc.) should be on a council that governs and provides checks and balances to the Consumer Financial Protection Agency.

"As the CFPA runs around creating morality-driven legislation, those regulatory agencies should be allowed to interpret and apply what they deem appropriate for the institutions, because they are regulating us right now. We have 1,700 pages of consumer protection law that our 50 associates need to understand 1,700 pages of things that we need to do to protect the consumer."

Hilary Shelton, director of the NAACP Washington Bureau, testified in favor of the agency, citing "systemic discriminatory and abusive lending practices and the resulting wealth-stripping, ruinous effects." He said "a study by the Center for Responsible Lending demonstrated that for most types of subprime home loans, African American and Latino borrowers are more than 30 percent more likely to have higher fees and interest rate loans than Caucasian borrowers, even after accounting for differences in risk."

Menzies said Congresswoman Maxine Waters, D-35th, Calif., wanted to know why community bankers are not in favor of standardized loan packages based on strict federal guidelines.

"The answer to that is really quite simple," said Menzies, explaining his response over the phone. "Community banks don't sell products. Community banks sell solutions to relationships. Community banks deliver individualized solutions to people and small businesses customized around the need of the business. If the only business community banks were in were distributed products distributing mortgages, distributing car loans, distributing education loans, distributing home equity loans what would our competitive advantage be? Why would we have a reason to exist?"

Menzies added that community banks offer personal and human interaction with local customers where the "lender takes ownership of the solution and isn't just packaging it and selling in the secondary market to somebody else."

A recent statement by John Wilson, one of the contracted new owners of the Tidewater Inn in Easton, supports Menzies' arguments. Speaking at an Easton Main Street business meeting, Wilson said: "Thank goodness the Talbot Bank is here because otherwise we wouldn't be here. There is no other bank that would do this today."

Menzies admitted the public has reasons for wanting to regulate predatory lenders.

"The public understandably perceives that there were people who screwed us with credit cards and bad mortgage loans, and so government should rein them in, so they can't do that anymore. But the public has got to understand that the community banks did not create this train wreck. If you put community banks in a one-size-fits-all box, you will put us in the Walmart mega-bank box with the big banks of the land and the franchise of community banking will go away. There won't be a need for community banks if all we can do is distribute homogenized government-approved products. Why would you need a community bank?"